7.4.2—Social benefits

Social benefit is the total benefit to society: private benefit received by the consumer plus any external benefit received by third parties. In symbols, MSB = MPB + MEB.

With a positive external benefit, the social marginal benefit curve lies above the private marginal benefit curve. If buyers consider only private benefit, market consumption is below the socially efficient quantity.

A vaccinated person receives private protection, while lower transmission benefits others. The external benefit makes the social value of an extra vaccination greater than the individual’s private value.

A positive externality is not simply a product that is popular; it requires a benefit spilling over to people outside the transaction.